Conventional wisdom says young people don’t need life insurance at all. If that’s true, someone needs to tell all of these young people.
The Globe and Mail reports that more and more Canadians in their 20s and 30s are buying life insurance online, having seen the toll COVID-19 has taken on people’s lives and the economy since March.
Most aren’t even worried about getting sick. But all the stories of layoffs and financial strife have made them think about what would happen to their families if their income disappeared for good someday.
As a result, Sun Life Financial has seen its online life insurance sales surge by more than 40%, compared to the same period last year. Sales are up by more than half among people under 40.
The truth is, many young people do need life insurance — but not all policies are designed for them. Here’s how to make sure you’re not wasting your money.
Do you need coverage?
To figure out whether you need to spend money on a policy at all, start by asking yourself these questions:
Are you single?
If you die, a life insurance policy could help your partner pay off the mortgage so they don’t need to sell the house. And it could make sure your child can afford to go to school one day. Whatever they happen to need.
But if you’re single, it’s much more likely that no one is depending on you and the money you make. At least, not yet.
You might still consider picking up a policy to lock in a low rate while you’re young and healthy or to cover the cost of your funeral.
Would your loved ones be fine without your income?
Even if you are married, you might not need life insurance. If your partner makes enough money, they could be capable of paying off the mortgage, maintaining the car, looking after the dogs and buying groceries all on their own.
It’s harder to make the case once children get involved.
Not only do you have to add years of child care expenses into the mix — don’t forget extra daycare, since you won’t be there to watch the kids anymore — but the cost of higher education keeps growing. Average undergraduate tuition rose to $6,838 for the 2018-2019 school year.
That’s tough to save up for, even with two salaries.
What kind of policies should you avoid?
If you think you might need life insurance, you’ll need to decide what kind — and there’s a lot to choose from.
The good news is that no matter what policy you buy, it’s going to be way cheaper to start when you’re young. But you could still end up paying much more than you need to.
First off, don’t get pressured into buying whole life insurance or universal life insurance.
The nice things about these policies is that they’re permanent: They don’t expire until, well, you do. They’re also much more expensive. Sometimes 10 times as expensive as other kinds of life insurance.
Part of the extra cost comes from the fact that these policies will pay out one day. And some allow you to get part of your money back if you cancel. But they also demand more cash each month so they can invest on your behalf.
Unfortunately, they get to make all the investment decisions for you — and will charge you hefty management fees for the privilege.
Whole and universal life insurance policies can be useful for wealthy people who have maxed out other investment options, like TFSAs and RRSPs, and want to dodge taxes on their inheritance.
If that doesn’t sound like you, there are probably better options.
What kind of policies should you consider?
If you’re only interested in life insurance to make sure your young family can pay the bills, you’re better off buying a term policy.
These policies are temporary. Your term can be as little as five years or as long as 30, depending on what you need. If you happen to die within that time frame, your family will get a payout.
With a term policy, you’re only paying for what you need. If you just had a kid and started a 25-year mortgage, you can buy a 25-year policy so you’re covered until the home is paid off and your child finishes school. After that point, you probably won’t need the policy anymore.
And since you aren’t guaranteed to die during the term, and there’s no investment angle, term policies are cheap. A 30-year-old man could buy $500,000 in coverage for 20 years, and it would only cost him about a buck a day.
How do you find the best rate?
The younger you are when you buy your policy, the cheaper your premiums will be — and they’re locked in till the end of your term. So it makes sense to buy a policy sooner rather than later.
To find the policy that will give you the most coverage for the best price, you’ll want to compare a bunch of insurance companies. One easy way to do that is to use a service like PolicyMe.
PolicyMe is a digital life insurance adviser. With a bit of information, it can walk you through the whole process, find the best rate and save you up to 50% on your monthly payments.
And if you get stuck, you can schedule a call with a licensed, human adviser, free of charge.
Remember, peace of mind will never be this affordable again: So live fast and buy young.